Capital Gains Tax on Property refers to the tax levied on the profit realized from the sale of a property. This tax is applicable when the selling price of the property exceeds its purchase price, adjusted for certain allowable costs and improvements.
When an individual or entity sells a property, they calculate the capital gain by subtracting the original purchase price (plus any associated costs such as improvements and selling fees) from the selling price. The resulting gain is subject to taxation, and the rate may vary depending on how long the property was held. Generally, properties held for over a year qualify for lower long-term capital gains tax rates, while those held for a shorter period may be taxed at regular income tax rates.
For example, if a homeowner purchased a property for $200,000 and sold it for $300,000 after making $20,000 in improvements, the capital gain would be $300,000 – ($200,000 + $20,000) = $80,000. This gain would then be taxed according to the applicable capital gains tax rate.
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